How to Calculate Amount Needed for Retirement
Determine the number of years you are likely to keep working while saving for retirement., Plan on needing 30 years of income in savings to have enough money to retire. , Calculate the annual income you will need for each year., Figure inflation...
Step-by-Step Guide
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Step 1: Determine the number of years you are likely to keep working while saving for retirement.
For instance, if you are 27 years old and plan to work until the retirement age of 67, you can expect to have 40 years of saving. -
Step 2: Plan on needing 30 years of income in savings to have enough money to retire.
, Part of this figure will depend upon whether your house will be paid off by the age of retirement, whether you plan to sell your existing house and buy a smaller or larger residence and the size of your family.
If your house will be paid off, you can estimate approximately 70 percent of your current annual income per retirement year for your retirement fund.
Having more children means that you will probably spend more on college educations, gifts, assistance and other expenses of this nature.
If you have 2 or more children, would like to be able to help them and any potential grandchildren, or plan to up-size in housing, figure 100 percent of your current annual salary per year when saving for retirement. , The inflation rate has averaged
2.48 percent from the year 2000 to
2011. , For this example, assume 70 percent of the current annual income of $50,000 will be required for each of 30 retirement years to have enough money to retire.
Assume also that retirement will occur 40 year​s from now.
It is easiest to do this in a spreadsheet, where the Future Value (FV) function can be used.
For the Rate field, enter
2.48 percent.
In the Nper field, enter the 40 years until retirement.
Leave the Pmt field empty and enter a calculation in the PV field to figure the $50,000 per year, multiplied by 30 retirement years, multiplied by 70 percent.
If you must calculate manually, use an FV table.
Multiply your total retirement fund per year by 30 retirement years and then by
2.68506 (the point where
2.5 percent inflation crosses 40 years until retirement) to arrive at an estimated $2.819 million.
Without inflation, you can assume that $1,050,000 would be needed in your retirement account while saving to retire.
With inflation added, however, you can see the number will be $2.8 million. , -
Step 3: Calculate the annual income you will need for each year.
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Step 4: Figure inflation into the problem.
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Step 5: Compile all the financial data into a formula to calculate the future value of the annual retirement fund income multiplied by the number of retirement years.
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Step 6: Adjust your final number by any pensions you will have
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Step 7: as the monthly payments from those will cover some of your retirement expenses.
Detailed Guide
For instance, if you are 27 years old and plan to work until the retirement age of 67, you can expect to have 40 years of saving.
, Part of this figure will depend upon whether your house will be paid off by the age of retirement, whether you plan to sell your existing house and buy a smaller or larger residence and the size of your family.
If your house will be paid off, you can estimate approximately 70 percent of your current annual income per retirement year for your retirement fund.
Having more children means that you will probably spend more on college educations, gifts, assistance and other expenses of this nature.
If you have 2 or more children, would like to be able to help them and any potential grandchildren, or plan to up-size in housing, figure 100 percent of your current annual salary per year when saving for retirement. , The inflation rate has averaged
2.48 percent from the year 2000 to
2011. , For this example, assume 70 percent of the current annual income of $50,000 will be required for each of 30 retirement years to have enough money to retire.
Assume also that retirement will occur 40 year​s from now.
It is easiest to do this in a spreadsheet, where the Future Value (FV) function can be used.
For the Rate field, enter
2.48 percent.
In the Nper field, enter the 40 years until retirement.
Leave the Pmt field empty and enter a calculation in the PV field to figure the $50,000 per year, multiplied by 30 retirement years, multiplied by 70 percent.
If you must calculate manually, use an FV table.
Multiply your total retirement fund per year by 30 retirement years and then by
2.68506 (the point where
2.5 percent inflation crosses 40 years until retirement) to arrive at an estimated $2.819 million.
Without inflation, you can assume that $1,050,000 would be needed in your retirement account while saving to retire.
With inflation added, however, you can see the number will be $2.8 million. ,
About the Author
Betty Reynolds
Experienced content creator specializing in crafts guides and tutorials.
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